Manitowoc Company Inc (MTW) 2012 Q4 法說會逐字稿

Good day, everyone. Welcome to today's Manitowoc Company's fourth quarter 2012 earnings call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Khail. please go ahead, sir.

Good morning, everyone. Thank you for joining Manitowoc's fourth quarter earnings conference call. Participating in today's call will be Glen Tellock, our Chairman and Chief Executive Officer; Carl Laurino, Senior Vice President and Chief Financial Officer; Mike Kachmer, President of Manitowoc Foodservice; and joining us from France is Eric Etchart, President of Manitowoc Cranes. Glen will open today's call by reviewing our 2012 accomplishments and our go-forward strategies. Carl will discuss our financial results for the fourth quarter and provide our initial guidance for 2013. Then our segment presidents will review their 2012 highlights an offer an outlook for their businesses in 2013.

For anyone who is not able to listen to today's entire call, an archived version of this call will be available later this morning. Please visit the Investor Relations section of our corporate website at www.manitowoc.com to access the replay. Before Glen begins his commentary, I would like to review our Safe Harbor statement. This call is taking place on February 1, 2013.

During the course of today's call, forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 will be made during each speaker's remarks and during our question-and-answer session. Such statements are based on the Company's current assessment of its markets and other factors that affect its business. However, actual results could differ materially from any implied projections due to one or more of the factors explained in Manitowoc's filings with the Securities and Exchange Commission, which are also available on our website. The Manitowoc Company does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or other circumstances. With that, I'll now turn the call over to Glen.

Thanks, Steve, and good morning, everyone. We ended the year well with fourth quarter sales growth of 10% and further margin improvement. Our full-year results, which were in line with our revenue and earnings expectations, reflected solid execution of our team against our strategic imperatives in the face of prolonged uncertainty in a global economy. Our Foodservice segment reported year-over-year sales growth of 7% in the fourth quarter with increased revenues across all of our geographies.

During the quarter, we also experienced solid year-over-year margin improvement with operating margins increasing 70 basis points while our -- while maintaining our investments to further strengthen our Foodservice business. Our strategy that primarily centers on retaining customers and evolving product lines and driving scale economies continues to bear fruit.

Turning to Cranes, sales grew 12% during the fourth quarter, representing our highest sales level since the fourth quarter of 2008. More impressively, operating earnings increased 45% on a year-over-year basis. Demand for our Crane products continues to be strongest in the Americas, complemented by improving activity in certain emerging markets and the greater Asia Pacific region. From a product perspective, large rough-terrain cranes and all-terrain cranes were the best contributors to growth for the quarter.

We expect 2013 to be another year of continued growth in both segments for revenue and earnings. We are focused on margin improvement in the face of slow growth and potentially choppy end markets and macroeconomies. Lingering concerns over government transitions, regulatory policies, and consumer confidence have influenced our outlook and action plans as we start 2013. However, our team has proven time and again, its ability to navigate through challenging landscapes. We have been diligent in our efforts to improve operational efficiencies and manage our cost structure over the last several years. Our Company-wide strategic initiatives remain unchanged. We will balance our investments for long-term growth with our unwavering commitment to drive meaningful enterprise margin expansion.

Now let me highlight some of these investments and initiatives. First, we continue to make strides to enhance and rightsize our global manufacturing footprint. As we previously discussed, we are building a multi-purpose foodservice manufacturing facility in Monterrey, Mexico. We are also in the process of further consolidating certain beverage equipment production from Southern California to an existing facility in Tijuana, Mexico.

Additionally, in Cleveland, we have invested in expanded manufacturing and a new full capability test kitchen that includes training, engineering, and marketing support for our Ovens production in the Americas. These investments have not only enabled us to consolidate our operations, but to also improve customer service and accelerate our product development processes.

Second, as part of our manufacturing strategy in Cranes, we remain committed to not only growing our presence in emerging markets, but also improving our footprint in manufacturing efficiencies globally. For example, as part of our initiatives in France, we are developing a shared services platform to serve our tower crane manufacturing and support operations in one, Charlieu and Ecully. In addition, we are accelerating our lean initiatives across all of our European operations to boost our manufacturing efficiency while also launching a program to in-source various components and processes to drive improved long-term profitability.

As we've stated, Brazil represents an excellent opportunity for Manitowoc which is enhanced by our new Crane manufacturing facility in Passo Fundo. Our Brazil factory will not only support our strong market share in the Latin America region but should benefit from strong infrastructure spending in energy, highway, and transportation projects.

Another important manufacturing initiative is our ongoing commitment to China, the world's largest construction equipment market. Our presence in and service to this market holds great value, and subject to final government approvals, we will soon be enhanced. We recently signed an agreement to replace our joint venture partner with Shantui Investment Company Limited. Eric will discuss the benefits of our expected -- our partnership with Shantui later in the call.

Moving on, the implementation of several operational excellence and quality initiatives remains a key priority for 2013. These initiatives include our previously discussed Project One ERP initiative, we recently completed the demand flow project to streamline our boom truck manufacturing, plus numerous operational excellence imperatives in both segments, which includes facility consolidations, lean initiatives, and regionally targeted manufacturing. These initiatives, coupled with our procurement savings, should enable us to significantly improve our enterprise margin profile, even in uncertain market conditions.

To conclude, our 2012 results benefited from investments to expand market shares, drive growth, optimize our cost structure, and expand margins. Looking ahead to 2013, global economic growth will continue to be challenged. However, our proven history to manage the Company in any market environment, coupled with our focus on strategic investments and initiatives, has set the foundation for sustained margin improvement as we move into 2013. I'll now turn the call over to Carl to discuss our detailed fourth-quarter financial results and to share our initial thoughts on guidance for 2013. Carl?

Thanks, Glen, and good morning, everyone. We reported net sales for the fourth quarter of $1.1 billion, which is an increase of 10% from year ago. The year-over-year sales increase was driven by a 12% increase in Crane segment sales, coupled with a 7% increase in Foodservice segment sales. GAAP net income for the fourth quarter was $34.5 million, or $0.26 per share, versus net income of $14.9 million, or $0.11 per share, last year. EPS, excluding special items, was also $0.27 per diluted share in the fourth quarter of 2012 versus $0.14 per diluted share last year. As noted in our press release, positive Q4 EPS adjustments included accelerated debt reduction charges and restructuring charges primarily related to headcount reductions in our European Crane business.

Moving to the balance sheet. We reduced our debt by $204 million during the quarter, bringing our full-year debt reduction total to approximately $80 million. Debt reduction in 2012 fell short of our full-year target due to a high volume of cranes that were shipped in the waning weeks of the fourth quarter. As a result, we had $60 million more in working capital at the end of December than we planned primarily in the form of accounts receivable that we expect to collect in the first quarter of 2013. This provides an opportunity which will mitigate the seasonal cash flow usage we typically see in the first quarter.

Turning to our segment results. Foodservice sales in the fourth quarter of 2012 totaled $363 million, up 7% from a year ago. Fourth quarter 2012 operating earnings in Foodservice were $50 million, a 12% increase. Operating margins of 13.8% were 70 basis points higher, driven by a favorable product sales mix and improved operating efficiencies across the segment. It is also important to note that we achieved these margin results while maintaining our investments in our key brands and product categories across our global platform, a strategy that we will continue to pursue to satisfy customers' demands for new and innovative products.

Moving to the Crane segment, fourth quarter sales totaled $767 million, a year-over-year increase of 12%. Fourth quarter sales were driven by successful shipment of pent-up third-quarter units as well as continuing strong demand in energy and infrastructure market with geographic strength primarily in the Americas and greater Asia Pacific. Overall, Crane segment operating earnings in the fourth quarter were $56 million versus $39 million last year. This resulted in fourth-quarter Crane segment operating margins of 7.3%, up 170 basis points. This year-over-year comparison was positively impacted by product cost take-outs, volume-related benefits, operating efficiencies, and pricing.

Crane's backlog at quarter-end was $756 million which was a slight decline from the prior-year quarter. While fourth quarter orders declined 19% from the prior year period, second half 2012 Crane orders were essentially equal to those in the second half of 2011. Year-over-year differences in stocking activity, coupled with the timing of pricing increases affected second semester order activity in both years.

Year-to-date, EVA improved through the fourth quarter of 2012 by 28% versus the fourth quarter of 2011. In the Crane segment, EVA climbed 112%, returning this business to positive full-year EVA for the first time since 2008. During the quarter, Foodservice also posted solid EVA growth with an improvement of 25% compared to the fourth quarter of 2011.

Before concluding my remarks, let me discuss our 2013 outlook. For the full year, we expect mid-single-digit revenue gains in Foodservice and high single-digit revenue growth in Cranes. We expect to achieve a continuing mid-teens operating margin in Foodservice and a high single-digit operating margin in Cranes. We view 2013 as a transition year for our Foodservice margins where improvements in the core business will offset strategic investments that lay the groundwork to realize our longer-term high-teens margin expectation.

Our debt reduction in 2013 should exceed $200 million, while capital expenditures and interest expense will approximate $100 million and $125 million, respectively. Debt-to-EBITDA will once again decline more than one full turn to below 4 times, approximately half of the peak levels experienced in 2010. Finally, we expect the full-year effective tax rate to be in the in the mid-30% range with seasonal volatility similar to our 2012 results. Let me now turn the call over to our next speaker, Mike Kachmer, who will share his thoughts concerning our Foodservice segment. Mike?

Thank you, Carl. We made significant progress in 2012 advancing our strategy and solidifying our leading position in the global foodservice industry. Our fourth quarter results were solid with sales growing across most markets, margins meaningfully expanding and investments being made in our brands and product categories.

From a geographic perspective, North America demand rose during the fourth quarter, primarily driven by US-based global chains. In addition, we saw increasing demand in other international regions such as Asia and Europe as we closed out the year. Equally important, we experienced margin expansion across all of our geographic regions during the quarter, while maintaining our strategic investments in the business, such as improving our infrastructure in emerging regions.

Looking at our results from a product line perspective, we saw increased activity in both our hot and cold product offerings during the fourth quarter. Specifically, we continued to see strong activity related to our Merrychef accelerated cooking ovens, particularly in the convenience store and sandwich shop segments. In December, we began shipments of our [blended] ice machines to support our launch in several European markets beginning in the spring.

We also enjoyed continued success with our Indigo ice machines at leading chains seeking energy and water savings as well as operational improvements. Our success with Indigo allowed us to gain additional market share in 2012 in the large and highly competitive ice cube machine segment.

In 2012, our investments in new product development yielded more than 30 new products. We introduced a variety of technological enhancements to multiple product offerings as innovation remains core to our strategy. Products from eight of our brands were recognized for their innovation by the North American Food Equipment Manufacturers Association and will be featured in their What's Hot, What's Cool! Pavilion at the industry's largest tradeshow next week.

Our What's Hot products include our ConvoSmoker from Convotherm, our Garland Green Heat Induction technology, and our Merrychef eikon E6, 7 with Planer Plume technology. Among our What's Cool products featured at NAFEM will be the Multiplex Icecore Beverage Chiller plus as new line of ice machines from Manitowoc. The strength of our products and brands provide significant opportunities to grow along with our customers.

Not only do we aim to be their supplier of choice, but also their innovator of choice. Our customers are constantly looking for new ways to enhance their menus and we are at the forefront of that innovation. As validation, Manitowoc received important recognitions in 2012. First, we received three Kitchen Innovation Awards from the National Restaurant Association. Second, five Manitowoc Foodservice brands won prestigious 2012 Overall Best In Class awards in Foodservice Equipment & Supplies magazine. Lastly, we were recognized by McDonald's for sustainability accomplishments.

Looking to 2013, we will deploy additional resources to strengthen our ice machine, beverage dispensing, fryer, and accelerated cooking product lines, while also commercializing new services. Maintaining our industry-leading positions with all of our brands is critical to our strategy and will be a major driver of our expected growth. In 2013, we will combine these great brands with an intense focus on select strategic accounts and long-standing channel partner relationships in our effort to accelerate growth in all markets.

We have also invested significant resources implementing our manufacturing strategy in driving lean initiatives. As a result, we expect our production efficiencies and our cost structure to improve significantly in 2013 and beyond. As Glen mentioned, we are building a multi-purpose manufacturing facility in Monterrey, Mexico, as well as consolidating certain beverage and [oven] operations.

We remain committed to optimizing our operational footprint over the next few years while further implementing world-class manufacturing processes. Overall, we expect a modest growth environment in 2013, but our close strategies will enable us to drive improved financial performance in the near and longer term through intense customer focus, greater innovation around our brands, and relentless efforts around operational excellence. With that, I'll now hand the call off to Eric Etchart for his views and outlook on the Crane segment.

Thank you, Mike. We ended 2012 on a promising note for the Crane segment with notable year-over-year and sequential revenue growth as the delayed shipment from Q3 bolstered revenue in the fourth quarter. Driven by sustained execution across all levels of the segment and geographies, we also saw a significant margin expansion to close out the year. Specific to our sales growth, we experienced strong activity in the Americas regions during the fourth quarter.

We also saw higher demand in several emerging markets such as Brazil; Central America; Africa, in general, and Nigeria, in particular; the Philippines and Thailand in greater Asia Pacific, while demand in Europe and China remain pressured. An unseasonably high fourth quarter backlog coupled with a cautious sentiment among customer driven by recent elections, the fiscal cliff debate and debt ceiling concerns in the US contributed to the sequential and year-over-year decline in orders during the fourth quarter.

From a product line perspective, we saw varied demand levels across our product categories in Cranes, with large rough-terrain cranes and all-terrain cranes making strong contributions as the demand continues to be driven by energy and infrastructure projects. Boom truck sales also increased during the quarter, primarily driven by activity in the oilfield and residential housing markets in North America. Typical with previous years, product lines activity picked up toward the end of the quarter in the Americas regions while tower crane activity remained pressured during the fourth quarter, measurably in Europe, China, and the Middle East.

Lastly, Crane Care continues to experience steady growth with solid activity across all regions and as this contributes to enhancing the reputation of our products in the eyes of customers in both traditional and emerging markets. During 2012, we introduced 10 new Crane products including the growth 400-ton capacity GMK6400 which began shipping in the fourth quarter. In addition, I am pleased to announce that our first model 31000 crawler cranes have been shipped to one of the largest rental operations in Korea.

We firmly believe that our recent and future product introductions are great investments for our customers, because they offer exceptional quality, dependable performance, and optimal [residual] value as illustrated by the success of our RT9150, one of the world's highest capacity rough-terrain cranes, and the GMK6400 as well, a remarkable all-terrain cranes that we launched in 2012.

As we enter 2013, we expect to announce several new products during the year as we emphasized our innovation imperatives and enhance our competitive position. On that note, let me reiterate some of our top key initiatives of the Crane business as we move forward to 2013 and beyond. First, continued investment in emerging markets. As Glen mentioned, production at our new facility in Brazil has ramped up and during the fourth quarter, the first [part] of rough-terrain cranes assembled in this factory were delivered. This new facility creates significant opportunities for Manitowoc in both the near and long-term in a region where our brands are clearly market leaders.

Second, we are focused on improving our operational efficiencies through initiatives such as Project One. When fully implemented, our new ERP system will unite and streamline numerous information functions across all of our Crane operations while enhancing our customer responsiveness and long-term margin profile.

Finally, we are committed to growing our presence in the Chinese tower crane market. Our joint venture with Shantui, a widely recognized and leading manufacturer of construction equipment, will enhance Manitowoc's presence in the strategically important market. Our initial plans calls for Manitowoc and Shantui to design and build tower cranes in China for both the domestic and export markets. Leveraging a geo-branding strategy, the JV is expected to supply a high-quality truck cranes for various emerging markets including India, the Middle East, Latin America, and Eastern Europe.

With the Shantui factory located close to the joint venture facility in Tai'An, the joint venture will have direct access to a large and secure crew of managers to lead the joint venture's operations, human resource, and purchasing functions. In addition, Shantui's sister company produces many of the key components that JV cranes will require which we can also for our cranes in Manitowoc's product line have access. In terms of the joint venture was finalized by Manitowoc and Shantui last week, with government approval of the joint venture expected shortly.

Looking ahead to 2013, we expect another year of modest growth due to the expected [emerging] markets in Europe and for tower cranes product lines specifically. The segment will focus on margin expansion, thanks to our commitment to world-class manufacturing, quality initiatives, and operational excellence. In addition, we will continue to enhance our competitive position by investing in new products and growing our presence in emerging markets to drive long-term profitability. With that, I will turn the call to Glen for his closing comments. Glen?

Thanks, Eric. Despite the challenges in 2012, we clearly demonstrated our ability to expand margins and capture market share in both Cranes and Foodservice. Looking forward, we expect 2013 to be a modest growth environment. However, I am convinced we have the right strategies in place to leverage our market-leading positions with prudent investments, while emphasizing our commitment to increasing profitability, boosting margins, and creating greater shareholder value.

Put another way, we will continue to build something real for our customers, for our employees, and for our shareholders as we have done for the past 110 years. This concludes our prepared remarks for today. Melody, we will now begin the question-and-answer session.

Thank you.

(Operator Instructions)

Ted Grace, Susquehanna.

I was hoping to just touch on the Crane orders. I know that -- I think both Glen and Eric had mentioned the transient impact of fiscal cliff and elections in the US. But is there any chance you could just try to quantify what that impact may have been or even talk to the progression of orders through the quarter and maybe give us some characterization of how January felt?

I can talk about the pacing a little bit, Ted. This is Carl.

Hi, Carl.

The -- I think, as you would expect, given the election in early November, I think we had definitely a very slow start to the normal type of pacing that we would typically see in the fourth quarter. As you know, it's tended to be seasonally strong as is the first quarter, typically. I think that eased a little bit post-election, but obviously, you still have the fiscal cliff concerns. So, overall, the other thing that I commented on in my section was the semester over semester, essentially being pretty close to flat. There were some differences as it relates to some announced pricing that took place in the fourth quarter of '11 that actually took place for '13 this year in the third quarter. I think that, that had a little effect on the pacing of the second half of year orders in both years.

Okay, and then just because we normally think about 4Q, 1Q being the strongest order quarters in this transient dynamic in the fourth quarter, could you -- should we recalibrate our expectations for 1Q and 2Q? Just to hit the -- it's not hard to see the backlog, but when should we look for orders to maybe accelerate to provide the coverage to hit the revenue growth targets?

Well, Ted, I wish I had a definite answer for that question. But I think by just providing the guidance that we did, I think it gives us some certainty that we still look around the globe. Whether it is in Asia, whether it is in some of the emerging markets, or even here in the Americas, I think we are comfortable with the guidance. I mean, shoot, we are only 31 days into the year. So I'd hate to say we're going to expect it to ramp up in the first quarter and not in the second.

I think it's just a different dynamic and again, you still have some of that fiscal cliff issue on being kicked down the road through the end of February. So, I think it is just a different dynamic, but I still feel comfortable with the guidance that we've given on Crane revenues. Eric, do you have anything to say on that?

No, I would agree. Obviously, we haven't seen the level of activity in the orders from the delivery in North America that we have seen in 2011 and that is a big driver for the difference and for the reasons we have discussed. But you have some positive signs that we see in the Americas region, for example, or some other emerging markets as we said. But obviously what is going to happen in Europe is also a big question mark and the activity is very sluggish. So if you put that in the bag, I think the guidance we give is a realistic one.

That is great. That is very helpful, guys. Best of luck this quarter and this year.

Andy Kaplowitz, Barclays.

The guidance that you gave for Crane margins is pretty wide. I know why you are doing it, there are a lot of variables there, but can you talk about some of the variables that would lead you to the high end of the range versus the low end of the range? Maybe in past calls, you've talked about mid-20% incrementals as a realistic goal for 2013. It seems like at the high end of the range, it might be higher than that. Is that because you faced a bunch of one-time issues in '12 and you can get better in '13? So how realistic is that you can get to a 30% incremental or higher in '13?

Yes, Andy, Carl again. The comment I would make on that is, as we've been talking about quite frequently, there's really been a negative mix to the current upcycle that we've seen. We don't see that necessarily changing to any great extent. I think with some of the inquiry that is going on, on some of the larger capacity crawler cranes, it certainly provides some potential for the latter part of 2013, but other than that, certainly not hanging our hat on getting a huge benefit that is coming out of mix. But the benefit that we see to get up to those higher margin levels that are implicit in the guidance really comes from some of the product cost take-out operational efficiencies that are ongoing to -- in the business and important initiatives for us in 2013 that Glen touched on in his prepared remarks.

Yes, Andy, I would add to that. With respect to both Foodservice and Cranes, I think the speed as some of the initiatives that we have going on, whether it's in Europe or whether it's in Mexico or whether it's in the United States, in the areas that we mentioned, the speed of how fast some of those come into play. The annualized amounts we get out of the savings and the benefits from some of those things, that plays to the higher end.

But I think we've tried to use a realistic number to guide into some of those margin expectations. But the faster pacing of some of those initiatives or completion, which in Cranes, some of them go into 2014 along with some of the Foodservice. It's a matter of you have a little bit of investment and not all the savings until really the first part or middle of next year.

Okay, that is helpful, Glen. Let me ask you about food equipment in the sense that you gave this guidance for continuing mid-teens margin which is obviously also kind of why, when you talked about some of the investments in '13 that are going to offset some of the cost savings and a modest revenue growth. But can we expect some margin improvement in '13 based on some of the cost initiatives that you've already had, new products are still coming out, and you will have some inherent growth there? We still expect some growth in margins; is that fair?

Yes, I think the answer to that, Andy, is yes. But I don't think you're going to see the -- what we try to be realistic about it. Because of some of the investments, it's not the size of the improvements you saw '11 to '12, and '12 -- I'm sorry, '10 to '11, and '11 to '12. But again, I want to get you to, when you look over the next 24 months, as you get into 2014, that is when we should see the greater jump in the margins in Foodservice.

I think the (multiple speakers) expectation for '13 is definitely a transition year. Remember that we did have a little bit of an unusual windfall in the first quarter of '12 that we certainly wouldn't expect to replicate. That will create a little bit of challenge in the first quarter. Then I think some of the benefits that we would see from some of the initiatives that we have in place really are late in -- come to [ruse] late in the year. The benefits that we're getting from the things we've already done are being offset from some of the longer-term investments that are being made that will enhance 2014 margins.

Jerry Revich, Goldman Sachs.

Just to continue the Foodservice margin discussion, because that sounds pretty interesting, heading into '14. I'm wondering if you might quantify for us the lean initiative spending in 2013 in terms of how meaningful of a headwind that is? What's the additional run rate savings that we're going to see in 2014 versus '13 once you're done with those initiatives as well?

Well, I'll make a comment on that and then turn it over it to Mike for any color that he would want to put in. The benefit that we see from our lean initiative this year is probably in the high-teen million dollar level in total for 2012.

We would expect similar levels in 2013. That, I think, gives you some flavor given the flattish expectation we've given for Foodservice margins about some of the investments that we're making in the business in order to drive operational efficiencies that will enhance 2014 and beyond.

Right, Carl. Just picking up on that comment, I think it's important to keep in mind the size and quantity of the initiatives in 2013. We are completing the consolidation of a factory from Fort Wayne, Indiana into Cleveland, Ohio, and along with that comes substantial expenses. We are closing multiple operations in Southern California, moving them to an existing base in Tijuana, Mexico. We've got a major new campus factory that is starting up in Monterrey that also have substantial expenses associated with it. So while we've done a lot since the acquisition of Enodis, the rate of expenditure and movement in 2013 is even more substantial, which is a good signal. Again, being offset by the other good things that are taking place from past years including lean.

That is helpful context and just a clarification, Carl. The team's number that you mentioned, is that just for Foodservice or across enterprise?

That was Foodservice.

Okay. On the Crane business, I'm wondering if you could just rank order for us, will which regions you expect to drive your business in 2013? Specifically what topline pick up are you expecting out of North America franchise?

I think, certainly, the Americas is the -- an area of the business where we are expecting continued strength. It's certainly been a big part of the upcycle that we have seen thus far. Other -- we've commented on other emerging markets, Asia, for Cranes has been a difficult story given China. In total, we see that turning around, definitely in 2013, and the indications that we've seen thus far are certainly adding some credibility to that idea.

Schon Williams, BB&T Capital Markets.

I wonder if you could just comment maybe a little bit more on the new China JV, maybe talk about when should we expect benefits from that new relationship to start to impact the numbers? And then, your old JV was -- it looked like it was unprofitable, should we expect this new JV to be immediately accretive? What should we expect in terms of financial impact there?

I'll make a general comment and then I'll let Eric follow-up on some of the more specifics. But this is a JV we have been in for quite awhile and if you recall, I think there were some assumptions made. We got into this with our original partner. There were some things we couldn't get through the government. So by changing out our joint venture partner with somebody the size of Shantui, it gives us a lot more opportunity with not only the improvement of the business to get to some pretty aggressive targets that have already been said between the two. But I think when you look at it, the last thing we have to get, Schon, is the final government approvals which we expect here in the next couple of months.

So I would say what you are going to see for many of the accounting and improvements, you will see in the second quarter of this year. As we go into 2013, I think as each month goes by, we should continue to see improvement as every month goes by as Shantui brings some of their operational experience and management skills from the China where we will bring a lot of the technology and some of our designs. So that is really what it is but Eric, I'll let you talk to the specifics of some of maybe your goals.

Yes, obviously, Shantui is a very strong player in the China market. If you look at their -- the dozers, that is one of their product lines, they are the number one with probably 60% market share in China. They have a fairly large distribution networks and we really want to start from that distribution network. First of all, to set obviously the product that the JV will produce, but also to penetrate, probably, we have more chance to succeed with our rough-terrains and our all-terrain cranes which are not going to be built in China. But I think access to that distribution network is very important for us.

Again, with the previous partner, we did not have a carrier license and this was really a definite headwind for us to be successful in China. Then finally, as I mentioned earlier, Shantui is part of SHIG, and within the Shandong Heavy Industry Group, you have Weichai Power. They produce a lot of components like [wheel loader], axles, transmissions, things that we can really use in our performance in truck cranes in China but also possibly leverage for our -- the other products.

So, for us, China is a very important market, not only because of the sheer size of the Chinese market, but we believe also that if we know how to play in that market and be relevant, we will probably be also stronger in, let's say, competing with the Chinese in the other emerging markets. So it's, I think, a very good move for Manitowoc. Again, short term but long term, I think we have a lot of potential to leverage that partnership with Shantui.

Okay, and then a follow-up on cranes, can we just talk about where we are in terms of utilization for the new Brazil facility and maybe the impact we can expect from that location in 2013 versus 2012?

Well, we've been happy with the ramp-up and efficiency of the factory. Obviously, it is only one factory and the success that we are having there is, obviously, inherent in the overall guidance that we have given. But we are on pace with where we expect it to be at this point in the project.

The other thing that I meant mentioned is that we are getting some benefits from a finance standpoint because of the amount of local content that we have that's helpful for our customers.

Yes, and maybe, Carl, I would throw in another comments. We also intend to, given the potential that we see in these markets, we are going to start the production of tower cranes. So we are starting with pre-balance of rough-terrains and we are going to start by the end of the year to produce also some tower cranes.

Charley Brady, BMO Capital Markets.

The guidance on the Foodservice revenues, just can you clarify, is that pro forma for removing Jackson?

Yes.

All right. Then just Eric's comment on the Crane business, I think a comment that towards the end of the quarter, you started seeing a pick-up in the Crawler business. Could you just elaborate a little bit on that? Is that carrying through? Was it a temporary type of thing? Are you seeing some real -- starting to see some improvement on the crawler side?

Well I think -- I don't know that I'd call it great improvements, Charlie, but I think what Eric's comments in his commentary, when we seem to get this, I would say, over the last two or three years, where people are looking into crawler, obviously, has the highest price tag of most of the products. So when you look at what people have towards that end of the year and they're looking at their tax situation, they're doing all those things, it's -- we've seen over the past two, three years where the fourth quarter seems to be pretty buoyant order intake in crawler sales what you can get out.

So I think that's more of that comment that it was consistent with prior years. So it was a pick-up in the fourth quarter versus the second or third, but I think it's still that product line that I think you -- somebody asked, how do you see the margins improving and if you see a pick-up in the non-res and you see a pickup in the housing, and people start feeling comfortable at other different markets. That is going to bring that along, but I think we, again, our guidance, I don't think we have great expectations for the crawlers in 2013.

All right. Just broadly on the Crane, you've talk a lot about the orders and what's happened in fourth quarter. But I wonder just on an acquiring level, a little bit softer number and what you're hearing from your customers as far as pent-up demand, and what that -- how that feels among your customer base?

I'll let Eric take that one.

Well, of course, if you look in the America market right now, there is a -- the mood is good. It's a little bit of this, that is probably why the [EED] and the [C&RA] in the first quarter in January. That's a first time in many years that we are starting to gain some more capital purchase planning for projects that are really identified, so that is always obviously very encouraging. So you see also the housing in certain areas is picking up which has stood up as well. You have the tower cranes which is not a big market, but their internal utilization in towers is really getting good and the rental rates are up.

So there are some signs that they are definitely positive I think in the US. Utilizations in the rental rates are picking up so that is really encouraging. But now, again, Europe is a completely different story. That's going to be a headwind definitely as we move into 2013 because we don't have hope that, especially on the tower crane business, because of the mobile crane business has been better. But towers, really, we don't think that we will see a lot of investment for the rental houses in Europe and especially in France and the other countries -- Italy and Portugal and Spain completely dead. We continue to be dead for awhile.

All right. One more and I will hop off. Just -- on the Chinese truck joint venture that you guys have recently announced, Eric, you've previously said in, I guess in an interview you were giving, that you've got about a 1% market share now, you think 10% is a reasonable goal over three to five years. I'm just wondering, is there any way to quantify, if we look out three to five years, you were able to get a 10% market share in the Chinese truck crane market, which is obviously the biggest in the world, what that might mean in terms of revenues?

Well, I would let Carl talk about the numbers but yes, that a goal that we have with our joint venture partner that we said that we've got to get there to be, again, I -- we use, relevant in China. We think that with all the benefits that we get with Shantui and obviously, the growth technology, we have a right ingredients to be successful, so Carl, do you want to comment on the sales?

Financially, at this point in time, obviously, we are a very small player in this market. It is a joint venture structure that's certainly enhancing our position with the upgrade, I call it, in the partner that we hope to get through the government approval process. But I think it's a little early to start putting some specific metrics. That objective is there for us to try to approach, but I don't think we are really prepared to put a lot of meat on that bone yet.

Mig Dobre, Robert W. Baird.

I'm wondering if you can provide a little more clarity around your Crane segment margin guidance? I'm trying to understand how much of the year-over-year margin improvement that you're seeing for 2013 is going to be a matter of volume and how much is driven by your operational excellence initiatives? I'm also wondering if we are likely to see a similar dynamic as to what we are seeing in Foodservice to where some of these initiatives could result in additional benefits in 2014?

Well, I think there is a difference, certainly, between our expectations about the incremental margins in Crane versus Foodservice and a lot of that goes back to what we talked about earlier in the call in terms of a transition year for foodservice from a margin performance standpoint.

For us in Cranes, the bulk of what we expect is really coming from the efficiencies, the product cost takeout. We expect to see some material cost inflation that we expect to be able to cover through our pricing and the balance of the improvement in the margins is going to come from lean quality initiatives is significant. The benefits that we get from those programs that have been put in place in terms of our cost reductions that would come from quality, would be the key drivers.

I think when you look at some of the Crane initiatives, Mike said a little more near-term when it comes towards the end of '13, early 2014. Some of the Crane initiatives, I would say, some of those, whether it's in France or some that we mentioned or some of the other ones in Asia, those are probably early 2014 at best, but the greater impact will be the back half of 2014.

Okay. Then switching over to Foodservice, you mentioned balanced growth across geographies. I'm wondering if you can give us a little more color, particularly, with regards to demand from the QSR customers outside of North America? Then related to this, considering the amount of new product introduction that you guys have had and relatively easy comps, as the year progresses, why shouldn't we expect a little bit more growth than what you are guiding for in 2013?

I'll -- Mike, go ahead if you want.

The first part of the question with regard to the balanced growth that's occurring across geographies, we did see success in the fourth quarter. Even in our toughest market, which is really the Western European market, we did reasonably well, also. We had good success with our accelerated cooking products, some of which was geared towards the QSR segment and others towards the general market.

The additional point around QSR in total, we are continuing to build up our connection to that segment. Our revenues associated with that segment continued to grow. The resources that we deployed against that segment continued to be enhanced. We see significant opportunities in '13 and beyond. It is a really important category for us as we have explicitly stated as part of our strategy.

The other thing that I would say about the guidance, Mig, is because this is an industry that tends to be correlated to consumer confidence and there is a lot of uncertainty in certain geographies, Europe in particular, but elsewhere as well. We don't have a significant expectation for any market cooperation in foodservice and the thing that will drive the guidance that we've given are the types of things that you are talking about. The new product introductions is the key driver there. So, that's where we stand from a guidance.

Thank you guys. Best of luck going forward.

Seth Weber, RBC Capital Markets.

Just wanted to go back to something that I think I heard Eric say, is Europe going to be an increasing headwind to the Crane business this year? It strikes me that it's probably not getting much worse from here or did I mishear something? Or is it just [plugging] along the bottom?

I don't think it is worse, that is not -- I think it's just a -- it's not -- it's a headwind in any of our growth projections. That's certainly the way to look at it. We have it as a flat market.

Right.

And low levels.

Okay, can you just remind (multiple speakers) --

The big decrease came in 2009 and 2010. That's -- really just been bumping along on the bottom since then.

Right. Can you remind us how far down that market has come, peak to trough?

Do we have to? (laughter)

Is it like 75% or so, or something like that?

You are in that range; it's probably a little bit more than that.

Okay. Is that largely the tower business and are there any measures that you could take in that business on the cost side?

Yes, and that is exactly what is going on. I think when you look at the commentary we made in taking some of the tower crane manufacturing and going to a [common] platform of managing the facilities in France, we are taking some actions. You see in the financials, we took a restructuring charge; a lot of it is for Europe. But when you look at basically the tower crane business, that's what it is. Yes, there's -- Eric has said, Italy and Spain and Portugal are dead, dead from a growth standpoint.

They are still things that are, whether it is some RTs or small crawlers or whatever it's going to be, you still have those one-offs, but we just aren't looking at it as it would be foolish for us to think that there is any growth there. But yes, we are improving the cost side of the basis and last year, we had the implementation of Project One in France. We've done it in Portugal so that's all incurring here in Europe so that is all helping the cost structure that we have in Europe.

Okay, thanks, Glen. Then just more broadly on the price cost equation, do you feel like you're getting pricing globally that is going to cover material costs? Can you just comment on the competitive environment for pricing for cranes?

Sure, Seth, as you know, we try to be a leader from a pricing standpoint. It is difficult for us to do that in cranes. You know about the big headwind we had in 2011 for the obvious reasons as a late cycle business. But over the longer period, we tend to do very well from a -- getting the pricing that is necessary for us to cover the material cost increases. Then the margin expansion comes from our operational efficiencies.

I would also mention, Seth, that you asked and this is just you said it in cranes, I want to reemphasize that it is also in Foodservice. It is not like Mike and his team have an easy go of it in putting price increases through or with competing -- with competition in the product lines. So, it is a competitive environment, and but I don't think it's going to change -- I don't think it's any different in 2013 than what we saw in 2012.

Fair enough, and then just on food, do you feel like the quick service guys are more likely to spend than the institutional? It sounds like there's been some slow -- some more challenges on the institutional food business lately.

I will let Mike address that.

I think that is a fair point and I think it is accurate. It varies a little bit by geography, but not in our largest markets. We think that quick service restaurants will spend more in '13 and probably into '14.

Rob Wertheimer, Vertical Research Partners.

It is Joe O'Dea on for Rob. First question, with respect to Cranes, just in terms of the operational benefits to margins in '13, how much of that did you really already have in 4Q? Then maybe with a push out of some of the $120 million of activity from 3Q to 4Q, did that weigh on margin at all in the quarter, just a little bit of a rush to get things done?

Well, we will always get volume benefits, probably not quite as much in 4Q as the topline would have reflected because of we did have some pent-up activity that we just simply weren't able to ship. But, as it relates to the operational initiatives that we have, that we expect as it heads 2013 margins, it's essentially driven by the new initiatives that will be put in place throughout the year, and obviously, getting some full-year run rates from some of the actions taken this year.

Okay. Just another one on the pricing environment, how well would you say pricing is sticking in this environment? Are competitors may be being a little bit more rational or does it vary considerably by product lines still?

Well, that is why I made the comment just at the end of the other one that it really hasn't changed from 2011 or 2012. I think there's some competitors that you would qualify as rational and some irrational. But, I'm sure in -- with certain customers or certain products or certain regions of the world, all of us are going to be -- any time you lose a deal, someone's going to call you irrational. So, but I think it is reasonable, so I don't -- I think the price increases that we've put through have been reasonable. I think people understand them and they can understand when you show them the data as to why it is. I think people are looking at it and saying it's unreasonable for where the commodity markets are and things like that.

So, look, Carl made the point, we try to lead with it. I think when you look at some of the competitors no matter who it is, whether it is Foodservice or Cranes, it depends on what the business model. Some would rather take a loss and have market share. I think we feel our products are leading brands and it should be afforded some of the things that come with being a leader. So we will continue to compete just like everyone else and the guidance reflects that appropriately.

Okay. Last one just on the tax rate with volatility over the course of quarters, are you able to frame anymore what to look for in the first quarter?

Well, it will be very high again in the first quarter. It is just the seasonal aspect of the business. You saw what happened in the first quarter last year. Don't necessarily expect it to be quite that high again, but the mid-30%s -- percentage effective tax rate or something that is a full-year metric. That will be skewed probably on the effective tax rate will be higher, probably considerably higher than that in the first quarter, probably lower than that in the second quarter, and closer to that to the full year to the metric than the last two quarters.

Ladies and gentlemen, that does conclude today's question-and-answer session. I'll turn the conference back over to Mr. Khail for any additional or closing remarks.

Before we conclude today's call, I would like to remind everyone that a replay of our fourth-quarter conference call will be available later this morning. You can access the replay by visiting the Investor Relations section of our corporate website at www.manitowoc.com. Thank you everyone for joining us today and for your continuing interest in the Manitowoc Company. We look forward to speaking with you again during our first-quarter conference call in May. Have a good day.

Again, ladies and gentlemen, that does conclude today's conference. Thank you all for joining.